TY - JOUR
AU - Ju,Jiandong
AU - Wei,Shang-Jin
TI - Current Account Adjustment: Some New Theory and Evidence
JF - National Bureau of Economic Research Working Paper Series
VL - No. 13388
PY - 2007
Y2 - September 2007
DO - 10.3386/w13388
UR - http://www.nber.org/papers/w13388
L1 - http://www.nber.org/papers/w13388.pdf
N1 - Author contact info:
Jiandong Ju
Shanghai University of Finance & Economics
Shanghai 200433
CHINA
E-Mail: ju.jiandong@shufe.edu.cn
Shang-Jin Wei
Graduate School of Business
Columbia University
Uris Hall 619
3022 Broadway
New York, NY 10027-6902
Tel: 212/854-9139
E-Mail: shangjin.wei@columbia.edu
AB - This paper aims to provide a theory of current account adjustment that generalizes the textbook version of the intertemporal approach to current account and places domestic labor market institutions at the center stage. In general, in response to a shock, an economy adjusts through a combination of a change in the composition of goods trade (i.e., intra-temporal trade channel) and a change in the current account (i.e., intertemporal trade channel). The more rigid the labor market, the slower the speed of adjustment of the current account towards its long-run equilibrium. Three pieces of evidence are provided that are consistent with the theory.
ER -